India Inc: Entangled in obsolete regulations

India Inc is mired in a cess-pool of restrictive archaic regulations. The writing on the wall is clear: If we need to promote growth there is an urgent need for a significant change in policy conceptualisation and implementation – especially in the arena of labour laws.

Blinded by irrational protectionist measures obsolete labour laws continue to hinder growth of business in India. Instead of reforms we see archaic laws rearing their ugly heads giving further leeway to corruption.

When it comes to ease of doing business, India’s rank slipped a further three positions as compared to the previous year, to stand at 134, according to World Bank’s report – ‘Doing Business 2014: Understanding Regulations for Small and Medium Size Enterprises (SMEs)’ Among the BRIC countries, ours was the lowest ranking, Russia led with a rank of 92, followed by China (Ranked 96) and Brazil (Ranked 116). Among the 189 countries assessed by the World Bank, even our neighbours fared much better. Pakistan was ranked at 110 and Bangladesh at 130. The sharper decline regarding the ease of starting a business (India’s rank on this individual parameter at 179 is lower than its overall ranking) is worrying.

Domestic industrial growth, especially that of SMEs directly and indirectly acts as a catalyst in boosting the economy. Thus, neither the results of World Bank’s survey nor sentiments expressed by India’s top executives should be taken lightly.

We have seen some reforms in corporate laws (A new Companies Act, 2013 is now in place, even as all sections have not yet come into effect and rules are at formalisation stage); and discussions on tax reforms are ongoing – such as the proposed Goods & Service Tax. It is the lack of labour reforms that hurts India Inc the most – there is even a lack of dialogue on this issue. The World’s Bank report has not even gone in-depth into the horrors that lurk in the fine print of obsolete labour laws.

The Working Group on Labour Laws for the 12th Five Year Plan (2012-17) duly recognised the need for simplification and rationalisation of labour laws. Blinded by irrational protectionist measures, obsolete labour laws continue to hinder growth of business in India. Instead of reforms we see archaic laws rearing their ugly heads giving further leeway to corruption.

The Factories Act, 1948, with its State-specific rules is considered to be one of the most draconian. Even for something as flimsy as a faulty sign for drinking water, it is a designated member of the board of directors who is served a notice. This gives a free hand to unscrupulous factory inspectors. While protecting the interest of factory workers is important, specifying nitty-gritty such as the height of walls in canteens which must have a ‘smooth surface’ is uncalled for.

In a competitive era, hiring and firing should be best left to the discretion of the management. Yet, under The Industrial Disputes Act, 1947, India Inc is ordinarily required to retrench that person who was the last to be employed in that category. For larger organisations (with more than 100 workers) the process of retrenchment is even more onerous and requires permission from regulators.

A company cannot even modernise rapidly as a 21 day notice is mandated for change in conditions of service – which include improvement of plant or techniques that could result in retrenchment. Given this, can one really blame India Inc for increasingly resorting to contract labour? Instead of dissuading this practise, the policy makers need to find out the root cause of its growing popularity.

The sweep of The Industrial Employment (Standing Orders) Act, 1946, is far-reaching as it covers all factory employers employing more than 100 workers (some States have reduced it to 50). Employers are required to define and publish conditions of employment – work hours, shift hours, leave days, holidays, gates for entry by workers into the factory et al, so that workers are aware of the same. Further, such ‘standing orders’ are to be certified by the labour department, which does so after hearing the objections of the trade unions or workers representatives. Incidentally seven or more workers can easily set up a trade union. The Working Group on Labour Laws has recognised that Trade Unions should be deregistered if they are guilty of business de-stabilisation, yet this suggestion may remain only on paper.

After a brief spell when Karnataka’s Information Technology sector found itself covered by the Standing Orders Act, 1946, the State government has recently announced its intent to reinstate the exemption. Surely, a cue can be taken from the action of the Karnataka State government. If a total abolition is not feasible, the Standing Orders Act, which was the first labour law to apply in Independent India, needs a complete re-haul.

In today’s competitive era, business decisions should not be dictated by obsolete laws and regulations. While admissions of the need for policy and legislative reforms have been expressed by various committees; with elections around the corner only non-legislative reforms seem feasible at this stage. That said, reform of labour laws is an issue that must not be brushed under the carpet.

DISCLAIMER : Views expressed above are the author's own.

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India Inc: Entangled in obsolete regulations

India Inc is mired in a cess-pool of restrictive archaic regulations. The writing on the wall is clear: If we need to promote growth there is an urgent need for a significant change in policy conceptualisation and implementation – especially in the arena of labour laws.

Blinded by irrational protectionist measures obsolete labour laws continue to hinder growth of business in India. Instead of reforms we see archaic laws rearing their ugly heads giving further leeway to corruption.

When it comes to ease of doing business, India’s rank slipped a further three positions as compared to the previous year, to stand at 134, according to World Bank’s report – ‘Doing Business 2014: Understanding Regulations for Small and Medium Size Enterprises (SMEs)’ Among the BRIC countries, ours was the lowest ranking, Russia led with a rank of 92, followed by China (Ranked 96) and Brazil (Ranked 116). Among the 189 countries assessed by the World Bank, even our neighbours fared much better. Pakistan was ranked at 110 and Bangladesh at 130. The sharper decline regarding the ease of starting a business (India’s rank on this individual parameter at 179 is lower than its overall ranking) is worrying.

Domestic industrial growth, especially that of SMEs directly and indirectly acts as a catalyst in boosting the economy. Thus, neither the results of World Bank’s survey nor sentiments expressed by India’s top executives should be taken lightly.

We have seen some reforms in corporate laws (A new Companies Act, 2013 is now in place, even as all sections have not yet come into effect and rules are at formalisation stage); and discussions on tax reforms are ongoing – such as the proposed Goods & Service Tax. It is the lack of labour reforms that hurts India Inc the most – there is even a lack of dialogue on this issue. The World’s Bank report has not even gone in-depth into the horrors that lurk in the fine print of obsolete labour laws.

The Working Group on Labour Laws for the 12th Five Year Plan (2012-17) duly recognised the need for simplification and rationalisation of labour laws. Blinded by irrational protectionist measures, obsolete labour laws continue to hinder growth of business in India. Instead of reforms we see archaic laws rearing their ugly heads giving further leeway to corruption.

The Factories Act, 1948, with its State-specific rules is considered to be one of the most draconian. Even for something as flimsy as a faulty sign for drinking water, it is a designated member of the board of directors who is served a notice. This gives a free hand to unscrupulous factory inspectors. While protecting the interest of factory workers is important, specifying nitty-gritty such as the height of walls in canteens which must have a ‘smooth surface’ is uncalled for.

In a competitive era, hiring and firing should be best left to the discretion of the management. Yet, under The Industrial Disputes Act, 1947, India Inc is ordinarily required to retrench that person who was the last to be employed in that category. For larger organisations (with more than 100 workers) the process of retrenchment is even more onerous and requires permission from regulators.

A company cannot even modernise rapidly as a 21 day notice is mandated for change in conditions of service – which include improvement of plant or techniques that could result in retrenchment. Given this, can one really blame India Inc for increasingly resorting to contract labour? Instead of dissuading this practise, the policy makers need to find out the root cause of its growing popularity.

The sweep of The Industrial Employment (Standing Orders) Act, 1946, is far-reaching as it covers all factory employers employing more than 100 workers (some States have reduced it to 50). Employers are required to define and publish conditions of employment – work hours, shift hours, leave days, holidays, gates for entry by workers into the factory et al, so that workers are aware of the same. Further, such ‘standing orders’ are to be certified by the labour department, which does so after hearing the objections of the trade unions or workers representatives. Incidentally seven or more workers can easily set up a trade union. The Working Group on Labour Laws has recognised that Trade Unions should be deregistered if they are guilty of business de-stabilisation, yet this suggestion may remain only on paper.

After a brief spell when Karnataka’s Information Technology sector found itself covered by the Standing Orders Act, 1946, the State government has recently announced its intent to reinstate the exemption. Surely, a cue can be taken from the action of the Karnataka State government. If a total abolition is not feasible, the Standing Orders Act, which was the first labour law to apply in Independent India, needs a complete re-haul.

In today’s competitive era, business decisions should not be dictated by obsolete laws and regulations. While admissions of the need for policy and legislative reforms have been expressed by various committees; with elections around the corner only non-legislative reforms seem feasible at this stage. That said, reform of labour laws is an issue that must not be brushed under the carpet.

DISCLAIMER : Views expressed above are the author's own.

Comments on this post are closed now

Be the first one to review.

Author

Twitter: @toi_lubnaK
Lubna Kably is a senior editor and team member of the Times Insight Group at The Times of India. Lubna's blog posts often feature Zenobia Aunty, who is well known for voicing her distaste of ambiguous regulations and uncalled for legal complexities. Law Street, as this blog is called, demystifies various regulations or proposals, especially those in the tax realm, that impact us in our individual capacity and also those that impact business entities.

Twitter: @toi_lubnaK
Lubna Kably is a senior editor and team member of the Times Insight Group at The Times of India. Lubna's blog posts often feature Zen. . .